Never underestimate the tribal powers that rule investment banks. The stand-off between Deutsche Bank’s global markets division and Dresdner Kleinwort Benson – threatened with integration – is a case in point. Edson Mitchell, Deutsche’s head of global markets, was hailed by his chairman Rolf Breuer last year as an Indian chief. By clever use of animal magnetism and the bonus pool, he inspires a Fierce loyalty among his warriors.
So Fierce that he can set the terms of the threatened integration with DKB. Where there’s overlap, forget the adage “blending the best”.
Tribalism rules. And if you belong to the wrong tribe, you don’t come on board unless you have a very special talent, and can subordinate your own tribal ties.
Look at what happened last year to the debt capital markets team at Bankers Trust, or to some perfectly good corporate Finance talent at Union Bank of Switzerland after the reverse takeover by Swiss Bank Corp. There are forces at work more powerful than the authority of those comparatively underpaid members of the European banks’ managing boards.
Investment bankers could be forgiven for kidding themselves that they are, after all, masters of the universe. The only successful antidote to their arrogance is not to care.
Interesting that the Five surviving board members of Dresdner Bank, pace Lenny Fischer who’s moved to asset management, are commercial bankers. It seems they didn’t care, or hadn’t thought, about the fate of DKB.
Edson’s tribe will get its way as long as Breuer and his team believe in the paramountcy of global investment banking. By giving away practically everything else to Allianz in a tripartite asset swap, they are playing into his hands. What is the future Deutsche Bank besides a distribution platform for wholesale and investment banking products? “I may as well buy shares in Merrill Lynch or Goldman Sachs,” has been a common investor reaction.
So by resisting integration, Deutsche’s investment bankers may for once be doing shareholders a favour, and halt the slide of Deutsche and Dresdner shares. If the investment banks do have to integrate, DKB bankers will either have to be paid off at hefty cost, or, almost as bad, will drift away to other banks, letting a valuable franchise fritter away. In the First nine months of 1999, DKB earned pre-tax profit of e774 million on revenue of e2.3 billion at an ROE of 29.5%, more than half of the pre-tax profit of e1.2 billion on revenue of e7.1 billion at an ROE of 15.1% for the whole of Dresdner Bank. It’s valuable. What’s the difference for Dresdner shareholders between selling DKB to a third party or paying to close it down?
Measure it in several billions of euros.
Of course the problem for the new Deutsche Bank is that it doesn’t want to hand a strong European investment bank to an American competitor that might overtake it.
Eu enlargement oxymoron
The EU is becoming the kind of exclusive club which makes itself feel important by restricting membership. New applicants have to be democratic, respect human rights and get this – be market economies, the very thing the EU does its best to undermine. For an organization that puts most of its efforts into robbing European taxpayers to subsidize inefficient French farmers it’s a pretty cheeky demand.
But the east Europeans are queuing up to join.
Their motives are to be inside the single market, to be on the receiving end of billions of euros in subsidies and to sport their new badge among other less fortunate emerging markets especially Russia.
The optimists always hoped the EU would be forced to reform itself in order to enlarge.
Eastern Europe could then become part of a more enlightened EU. Forget it. Enlargement means the spread of EU bureaucracy and subsidies into economies that have just crawled out of communism. Will they notice the difference?
The latest idea is to shuffle the EU budget so that Polish farmers can be as out of touch with world food prices as the French. Other attractions are labour restrictions that should achieve the same high unemployment rates western Europe enjoys and environmental standards inappropriate for developing countries.
Most controversial is the idea to have the newcomers adopt the euro and subject their economies to the tyranny of what, for them, may be an overvalued currency and certainly an inappropriate monetary policy. Many analysts see this as a highly premature move and suggest the east Europeans should restructure their economies First.
Yet the EU problem could be solved quite simply by abandoning the obsession with harmonization and allowing different degrees of integration among members. If this was happening across the region, the new applicants would not feel like second class citizens. The subsidies might not Flow so quickly but the quid pro quo would be faster and less onerous membership.
